Yeah, that would work, BUT! What if he stops paying down the road? The only thing you have is his signature agreeing to pay, that doesn’t force him to keep paying! You want to get something else put up as security to insure he keeps paying or loses something of value if he doesn’t. It’s common to get sellers to agree to pay x amount every month and then later they decide they don’t want to pay any longer! They figure they don’t own the property any longer so why should they keep paying for something they no longer own??? It will mostly depend on the sellers situation as far as how good their credit is, their income, where they stand financially, etc. If they don’t have much to lose then it’s more likely they may decide to stop paying at some point! This why you don’t want your deal to be dependant on the seller making any payments. Any payments made by the seller should be gravy so if they stop paying it won’t put you in a negative cash flow position. In your case it sounds like you will need the seller to pay the $350 just to keep you with a $200 cash flow. In your case I would require the seller to put something on value up for additional security to insure he performs on his end of the deal. Otherwise you can foreclose or take what ever personal property he pledge as security if he was to default.
Have a guy that got him self in a little trouble with his payments. Everything is current, but he is in over his head. He purchased a second home for retirement, using a 2nd on his primary residence for a down payment on the retirement home.
I would be interested in a subject to on his home, but would like for him to remain responsible for the 2nd mortgage. This would reduce what my payment would be by $350, making the rents I would charge inline for the area and it would then cash flow about $200/m.
What would I need to do here? Asking him to refinance into one new mortgage is out of the question. The 2nd mortgage is only about 6 months old, so payoff would be a much longer term than my option will be. I guess the real question is how do I exclude his 2nd mortgage from my deal and be sure I am covered when it comes time for a T/B to exercise his option?
Since the second will have a longer term on it than what your option will be, you will have to pay that off at closing when your tenant exercises their option. As long as your tenant’s option price will be higher than what the total of both mortgages will be you should be ok. You just won’t be able to collect the cash at closing for the second’s pay off amount.
You could agree to take over the second subject to and have the seller give you a new second against his other property. Set it up under the same terms as his current second is on this property.
The seller makes a payment to you for $350 on the new second you secure against his other property. You in turn use that $350 to cover the seller’s second mortgage payment on the current property. When your tenant exercises you will have to pay off the second from the proceeds your tenant comes to closing with. You won’t get all the cash for the amount of that second at closing, but you will continue to collect $350 per month in payments from the seller until he pays you off. In the end you still collect all your money, just over time by taking payments from the seller.
If the seller defaults you can foreclose on his other property!
Mr. Seller, you will remain responsible for paying off this second. The problem is when my buyer refinances you may not be able to come up with all the cash to pay that second off. So that means that I will have to come out of pocket to pay it off for you so my buyer can get clear title. I will need some security from you to guarantee that you pay me back after I pay that second off. The easiest way to do this is if I just agree to take over your second where I’ll make the payments every month and in exchange for doing that you just give me a new second for the same amount against your other property. This way when my buyer pays off the property you won’t be under any pressure to come up with the balance owed on the second. I’ll just take care of paying that off and you can just continue to make payments to me each month until you eventually pay me back!
Having some time to think about this one, it would be fine to make the payoff of both when a T/B would exercise their option to buy. It would leave $10K-$12K on the back end, $200-$300 monthly cash flow plus what ever consideration money ($3k to $5K)was given.
Where or how would I cover in my contract that the current owner is responsible for making the payments on the 2nd? I would want him to make these payments to me, then I would write the checks to assure payments are being made.
You don’t need to put this in your contract. Instead, just draw up a second mortgage that you would hold as security against the seller’s other property. The seller will have to make payments to you to keep you from foreclosing against hi other property. When the seller makes his payment to you on his second against his other property, you make the payment on his current second directly to the bank.
You agree to take over the current first AND the current second subject to.
Since you would be creating a new second against the seller’s other property, you won’t need anything in the current contract regarding him making payments on this second. He won’t be required to pay on the current second, YOU will. He will be required to make payments on the new second that you record against his other property.
What you’re doing is giving him a new loan for the amount of his current second. Instead of handing him the actual cash, you’ll be taking over the current second in lieu of giving him the cash.
You will actually be entering into two seperate agreements. One where you will be taking over both current mortgages subject to and a second agreement where you will be loaning him the amount of the current second to be secured against his other home by recording a new second mortgage against it as security to insure he pays you in full for the amount of the current second you will take over subject to.
Example:
Say is current second has a balance of $15k owed. I will give you the $15k in the form of a new second mortgage to be recorded against your other home. In turn I will then take over the payments on your current second on the home I’m buying.
Ok, I gotcha now. But what if this doesnt fly with him? Would adding wording to the effect he has agreed to make the payments on the 2nd mortgage, on the purchase agreement work? Just trying to know my options ahead of time.